Making a List, Checking It Twice

In this week’s Stock Market Video Mike Cintolo, Editor of Cabot Market Letter and Cabot Top Ten Trader, talks about the market’s two-steps-forward, one-step-back advance since its early June low, and also opines that, should the rally kick into a higher gear, growth stocks are going to have to lift off (as opposed to the defensive stocks that have led thus far). Stocks mentioned include: eBay (EBAY), D.R. Horton (DHI), Lennar (LEN), TransDigm (TDG), Amazon.com (AMZN), LinkedIn (LNKD) and more. Click below to watch the video!

Making a List, Checking It Twice

Lists are fun to make and fun to read. I’m a sucker for a Top Ten list of almost anything, from 10 highest-paid athletes to 10 worst cities for left-handed truck drivers. These lists are a great way to get a discussion going, start an argument or make a point. And the outraged responses to such lists when they appear online makes them even better.

Every once in a while, when the MegaBucks jackpot gets big enough, everyone at Cabot kicks in a dollar and we buy a wad of lottery tickets. I know that there are people who have lists of the things they will buy if we win. (I hate to tell them that, at least from a statistical point of view, our chance of winning is essentially the same whether we buy tickets or not. But it’s fun to dream.)

The kind of list I want to talk about briefly is a watch list of stocks that you are interested in. This is not a buy list. It’s more like a group of stocks that have something interesting about them, but don’t have enough pieces in place to get you to the buying point.

There are at least three reasons that you might have interesting stocks and not buy them, but the best one is that the market isn’t ready yet. While the market timing indicators for both the Cabot Market Letter and Cabot China & Emerging Markets Report are positive today, this isn’t anyone’s idea of a roaring bull market. (A quick viewing of Mike Cintolo’s video above will give you the idea.)

But the question I get asked most often when I’m talking about watch lists is, “How the heck do you find growth stocks for the list?” And I understand that, especially for neophytes, the stock market looks like a blooming, buzzing confusion, a sea of little fishes dominated by growth sharks like Apple (AAPL), income whales like Procter and Gamble (PG) and value stocks with low P/E ratios and charts that are as flat as tropical lagoons.

If you are really serious about developing a watch list from scratch, all you have to do is go to your online broker’s site and screen the entire universe of stocks that trade on U.S. exchanges as follows (it’s easier than it sounds): 1) screen only for stocks that trade for $10 or above, which will eliminate the penny stocks and low-priced rabble; 2) screen what remains for stocks that trade at least 400,000 shares a day, on average, which will weed out the hyper-volatile small issues; 3) screen for stocks whose price is higher than it was when the year started, which will give you stocks in uptrends; and 4) screen for stocks whose 2011 revenue and earnings came in higher than in 2010.

When you get done, you should have a list of interesting candidates that you can weed further by investigating stories, by digging into revenue and earnings trends and by seeking out the strongest charts.

This will really work, and the time you spend will pay off handsomely as you follow the progress of the stocks that survived your multiple layers of screening. You will follow their reactions to earnings reports, see how sensitive they are to good and bad news, and get to appreciate the power of an innovative product mix.

As a less-stressful alternative, you might also consider just putting the stocks mentioned in the Cabot video review and Cabot Wealth Advisories on your watch list. It won’t be comprehensive, but Cabot’s editors actually analyze markets and stocks as a full-time job, and I think we’re quite skilled.

Note: I’m trying not to be too self-serving here, so I’m leaving until last the suggestion that Cabot Top Ten Report will do all of this dog-work for you, delivering the ten strongest stocks of the previous week to you every Monday, complete with expert analysis and fundamentals. But now that I’ve mentioned it, you can check out this admirable research aid by clicking here.

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Here’s this week’s Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here.

Do Not Project Prejudice Into the Process

A simple admonition to confine your thinking to the facts, while keeping personal biases at bay. Amateur investors typically fail because they haven’t learned to separate facts from personal beliefs. [Editor’s Note: Controlling your prejudices is probably a good idea for almost any activity in your life, not just investing, but I’m entirely too discrete to point that out. I’ll just add that one of my recent favorites among bumper stickers is on the same theme. It reads: “Don’t Believe Everything You Think.”]

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In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, there are links below to each issue.

In this issue, Cabot Market Letter editor Mike Cintolo passes along some investment tips based on trying to improve his shaky golf game and looks at how earnings season may set the tone for the market. Stocks discussed: TripAdvisor (TRIP) and Zillow (Z).

Have a great weekend,

Paul Goodwin
Editor, Cabot Wealth Advisory

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Paul Goodwin has been a researcher and writer for over 30 years. His Cabot Emerging Markets Investor will show you the vast profit potential of investing in countries whose economies are growing far faster than that of the U.S.

Cabot Wealth Advisories

Cabot Benjamin Graham Value Investor uses the methods developed by the father of value investing, Benjamin Graham, and popularized by Warren Buffet. A system that works well in all markets, it buys stocks when they're dirt cheap, and sells when they've reached full valuation, a process that takes two years for the average selection. What's important here is buying only when a stock's price is below its Maximum Buy Price, holding through thick and thin, regardless of the news or the action of the stock, and then selling when the stock reaches its Minimum Buy Price. These are great stocks to own if you're a conservative stock investor. Chief Analyst J. Royden Ward explains clearly how to build a portfolio of stocks that meet his strict requirements-plus every issue includes updated rankings on his "Top 275 Value Stocks," so you can check on other stocks you may own.

Cabot Dividend Investor focuses on preparing for retirement, recommending a solid range of income-generating stocks, preferred stocks, REITs, MLPs, closed end funds and utilities, with particular emphasis on risk, dividend safety and dividend growth. If you’re retired or thinking about retirement, this advisory is designed for you. Cabot Dividend Investor’s proprietary Individual Retirement Income System (IRIS) will help you allocate your assets for capital appreciation, current income, growth and future income investments according to your retirement goals.

Cabot Emerging Markets Investor focuses on the emerging markets economies, with special attention paid to the BRIC (Brazil, Russia, India and China) investment landscape. You'll discover the value of international diversification and the profit potential of investing in countries whose economies are growing far faster than that of the U.S. All these stocks are traded on U.S. exchanges, usually as American Depositary Receipts. Under the guidance of Chief Analyst Paul Goodwin, Cabot Emerging Markets Investor was recognized as the top investment newsletter in 2006 and 2007 by Hulbert Financial Digest, and was rated by Hulbert as one of the top investment newsletters in every five-year period 2004 to 2011.

Cabot Growth Investor is our flagship investment advisory. Published since 1970, it is recommended for all investors seeking to grow their wealth. As a subscriber, each week you'll receive clear and comprehensive updates on the stocks recommended in our legendary Model Portfolio. You’ll also be kept apprised of the status of Cabot's proprietary market timing indicators so you’ll retreat to the safety of cash in every major bear market, and you’ll be aggressively invested in the best growth stocks in every major bull market. Furthermore, you’ll learn invaluable investing lessons, so that you won’t just become a more successful investor—you’ll become a wiser investor!

Cabot Options Trader’s Chief Analyst and options expert Jacob Mintz uses calls, puts and covered calls to guide investors to quick profits while always controlling risk. Beginners and experts alike can benefit from following Jacob’s advice. Whenever Jacob determines the time is right, he sends specific option buy and sell alerts via email and text-message for immediate action. He also sends out a weekly update with his views on the options market, open option positions and his outlook for the coming week.

Cabot Options Trader Pro’s Chief Analyst and options expert Jacob Mintz uses the full spectrum of option strategies to recommend the option that best suits the trade opportunity—calls, puts, spreads, straddles, iron condors and more—while always controlling risk. Whenever Jacob determines the time is right, he sends specific option buy and sell alerts via email and text-message for immediate action. He also sends out a weekly update with his views on the options market, open option positions and his outlook for the coming week.

Cabot Small-Cap Confidential is a limited-circulation advisory for investors seeking profit opportunities in high-potential small company stocks. Each month, small-cap expert and Chief Analyst Tyler Laundon features in-depth research on one outstanding small-company stock that is a pioneer in its field and undiscovered by institutional analysts. Updates on all recommended stocks are sent weekly. The circulation of Cabot Small-Cap Confidential is strictly limited because the stocks recommended are often low-priced and thinly traded. In the publication’s first five years, spanning 2007-2012, the average stock recommendation gained 30.5%.

Cabot Stock of the Week offers the very best of all Cabot stocks across the investing spectrum. Each stock is personally selected by Cabot’s President and most Senior Analyst Timothy Lutts, and guided by the collective wisdom of all the Cabot expert analysts. As a subscriber of Cabot Stock of the Week, you’ll build your wealth and reduce your risk with the single best stock each week for current market conditions among growth, momentum, emerging markets, value, dividend and small-cap stocks.

Designed for experienced investors, Cabot Top Ten Trader is your ticket to fast profits in stocks that are under accumulation now. Every Monday you’ll receive a one-page profile of each recommended stock, including fundamental analysis, technical analysis and buy ranges. Plus... each Friday, Chief Analyst Michael Cintolo will give you an update titled "Movers & Shakers," so you’ll always know his latest thoughts on these fast-moving stocks. Cabot Top Ten Trader is your best source of advice on investing in the market’s hottest stocks.

Cabot Undervalued Stocks Advisor peels back the curtain of glamour and volatility that surrounds the stock market, to assess good stock-investing opportunities without being spooked by sensationalized daily news stories. Chief Analyst Crista Huff’s goal is to assist you in outperforming the major U.S. stock market indexes, while minimizing risk by screening many hundreds of stocks for growth, value and bullish technical charts. Crista presents three portfolios: Growth, Growth & Income and Buy Low Opportunities, with specific Buy, Hold and Sell advice.

Wall Street’s Best Dividend Stocks presents the best income investments from the top Wall Street analysts, researchers and advisors. Editor Nancy Zambell scours more than 200 advisories and research reports to select the top recommendations. Dividend recommendations include high yield, growth and income, REITs, mutual funds, ETFs and more. One Spotlight Stock is featured each month, along with Nancy’s insight on the market and updates on past recommendations. One top recommendation arrives in your email box each morning, and then gets collected into an easy-to-read digest of 30 to 35 top recommendations each month.

Wall Street’s Best Investments presents the best ideas from the top Wall Street analysts, researchers and advisors. Editor Nancy Zambell scours more than 200 advisories and research reports to select the top recommendations. Investment recommendations include growth stocks, value stocks, technology, small-caps, biotech, pharmaceuticals, mutual funds, ETFs and more. One Spotlight Stock is featured each month, along with Nancy’s insight on the market and updates on past recommendations. One top recommendation arrives in your email box each morning, and then gets collected into an easy-to-read digest of 35 to 40 top recommendations each month.

Reviews

“It has been an exhausting search to find an advisory service as good as Cabot Small-Cap Confidential. The proof is in the pudding.”

-D. Napoletano, DMD,Middletown, New York

Market Update

From Cabot Small-Cap Confidential:

The S&P 600 Small Cap Index is up in 20 of the last 24 days.

The stock market has been having quite the party over the past month. Since November 8, the date of the election, the S&P 500 is up by 4.8%. Small caps have crushed that performance, rising by almost 16% over the same timeframe. Much of that outperformance can likely be attributed to a more favorable relative valuation (as compared to large cap) heading into the election. And an even better outlook coming out, given what is expected to be a pro-growth administration. Given the outlook for a pro-USA administration as well, which favors small caps over large (given their 19% ex-U.S. revenue exposure vs. roughly 30% ex-U.S. for S&P 500), we essentially wound up with a pro-small cap-squared backdrop. Everything has been working.

Alert

Many top earnings winners pulled back during the two-day Brexit selloff. I want to initiate a bullish position in Applied Materials which stood out after
blowing away earnings estimates. While I like the stock, I believe that there may be limited upside in most stocks, so I want to initiate a buy-write,
which sells expensive options.

To execute this trade, you need to:
Buy AMAT Stock,
Sell to Open the August 23 Calls.

As is always the case, you can sell one call for every 100 shares of stock you buy. Or five calls for every 500 shares you purchase.

For example, you could buy AMAT stock at 23 and sell August 23 Calls for 1.00 (the math behind this net price is 23 minus 1 equals 22).
I expect you will get a better price than I'm recommending.

The most you can make on this trade is $1.00, a yield of 4.54% in just over a month if AMAT closes above 23 on August expiration.

If AMAT is unchanged on August expiration, we will have created a yield of 4.54%.

Breakeven on this trade is 22.

The most you can lose on this trade is $2200 per buy-write if AMAT were to go to zero.

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